September 29, 2017 / 3:33 PM / 10 months ago

Hail Caesars! Casino giant back in the bond game

NEW YORK, Sept 29 (IFR) - Casino giant Caesars got a hearty welcome back to the bond markets on Friday, ending a three-year hiatus after one of the most acrimonious investor battles in recent memory.

Its US$1.7bn junk-bond offering, part of a much larger financing for the company’s reorganization, priced at a yield of 5.25%.

That was at the wide end of price talk of 5%-5.25%, but still below the 5.4% average yield-to-worst for similarly rated bonds, according to Bank of America Merrill Lynch data.

For a credit with such an anguished history over the past decade, that level was a sign of just how far the rally in junk-rated paper has gone.

“In a hot market, memories become short and all past sins are forgiven,” said Mike Terwilliger, a portfolio manager at Resource America who has closely followed the company.

Yet many pointed out that the problem all along was not Caesars per se, but rather the massive debt crammed on top of it after a disastrous 2008 buyout.

“The issue with Caesars was always the capital structure, not the business,” said one leveraged finance banker. “The buyout was done when leverage levels were off the charts.”

Apollo Global Management and TPG Capital took over the company, then known as Harrah’s Entertainment, in a US$27.8bn LBO that put it on the road to disaster.

The mountain of debt got loaded in just before recession hit, forcing the company to route cash towards interest payments instead of investments.

And the sponsors transferred key Las Vegas properties such as the Bally’s and Planet Hollywood hotels into subsidiaries before the main entity filed for bankruptcy in January 2015, triggering a fight with creditors.

Now the sides have agreed on a reorganization expected to bring the entity out of bankruptcy in the fourth quarter. Proceeds from the debt sale will refinance debt at the two subsidiaries.

The eight-year non-call three bond (B3/B-), with JP Morgan as lead-left but 12 other banks on the deal, was marketed alongside a US$4.7bn term loan and a US$1bn revolver, US$300m of which is expected to be drawn at closing.

The new debt is being issued by Caesars Resort Collections, a new entity created through the merger of the two subsidiaries.

After emergence from bankruptcy, Apollo and TPG will control nearly 21% of the holding company, Caesars Entertainment.

The refinancing was marketed with leverage of 6.5 times, according to a presentation seen by IFR.

On an investor call this week, Caesars executives said the company did not plan to increase leverage as it considers growth and acquisition opportunities once out of bankruptcy.

But some in the market said Caesars would have to ramp up spending significantly after years of underinvestment.

“They want to be more aggressive, because in the past 10 years they have been hampered (by) the debt balance and interest expense,” said one portfolio manager.

One investor who submitted orders for the bond said the company’s chequered past in fact warranted a higher yield.

But his firm eventually got comfortable with the properties included in the deal as well as the reorganisation plan.

“I would love for us to be in a market where credits that have gone into bankruptcy get penalized,” he told IFR. “But the reality is that the assets were never the problem here.” (Reporting by Davide Scigliuzzo; Editing by Marc Carnegie)

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